DOMTAR ANNUAL REVIEW 2 0 0 7 • VOL. 01 this is domtar Getting to know North America’s newest leader in fine papermaking being annual review number oneInterview with Raymond Royer P R E S I D E N T A N D C E O DOMTAR CORPORATION paper is part of everyday life Ask Cougar® a strategically positioned production system Domtar is proud of its papermakers. Find out where it all happens… SUSTainability: putting words into action • NEW PRODUCT DEVELOPMENT • ONE TEAM, ONE GOAL, 13,000 STRONG • AIR, WATER, FIRE AND EARTH Great ideas always command greater attention. That’s why you need Cougar®. Offering standout performance, Cougar remains the favorite for its power to amaze and impress. Cougar’s stellar brightness and balanced 98 GE white shade — in addition to its smooth, uniform print brightness surface and high opacity — deliver rich, vibrant colors and sharp images with startling results. With consistent performance, both on press and off, Cougar provides FSC uncompromising quality and excellent value. Containing certified 10% post-consumer fiber, Cougar is now FSC-certified and a premiere member of the Domtar EarthChoice® Smooth family. For guaranteed success and a performance that & Vellum commands attention, always remember to ask for Cougar. finishes Domtar is pleased to make an annual contribution of $275,000 to WWF from the sale of Cougar brand products. © 1986 Panda symbol WWF-World Wide Fund For Nature (also known as World Wildlife Fund) ® “WWF” is a WWF Registered Trademark cougar ® 2007 ANNUAL REVIEW Michel A. RATHIER Editor in Chief EDITOrial TeaM Marie CHAMBERLAND Richard DESCARRIES Bérangère PARRY Lyla RADMANOVICH CONTRIBUTORS Linda BÉLANGER Pascal BOSSÉ Guy BOUCHER Michael CROSS Michel DAGENAIS Tom HOWARD Patrice LÉGER-BOURGOUIN Jim LENHOFF 14 Rick MULLEN Chantal NEPVEU governing for success Domtar is Mélanie PAILLÉ committed to the highest standards of ethical behavior Gilles PHARAND and business conduct. Norm RITCHIE Kathy WHOLLEY FeaTureS 22 looking great Want your organization to Writers Jay BEAUDOIN (Domtar, make its best impression? Then start with Domtar papers. Woodland, Maine) Cindy KRZYSIAK (Domtar, Technology Manager) Production notes: 34 footprint Domtar has a broad geographic GraPHic DeSign Paper: Cover printed on FSC-certified footprint, with manufacturing or distribution facilities in anD PrinT 65 lb. Cougar Cover, Smooth Finish PRODucTION Text printed on FSC-certified 37 of 50 U.S. states and seven of ten Canadian provinces. 70 lb. Cougar Text, Smooth Finish ARDOISE DESIGN COMMUNICATIONS, Ink: Montreal, QC, Canada Outside front cover and outside 56 back cover printed with UV ink out of 4-color process with a one team, one goal Domtar fields one dot-for-dot dull varnish DAILEY & ASSOCIATES, of the most accomplished teams in the paper business. West Hollywood, CA Inside front cover and inside back cover as well as all text pages printed with conventional PHOTOgraPHY ink out of 4-color process with a dot-for-dot dull varnish 66 Pierre CHARBONNEAU Press: a dedicated commitment Pierre CREVIER Printed on a 12-color to its communities Domtar considers Ronald MAISONNEUVE 40" Heidelberg Speedmaster 102P press, equipped with interdeck David ZAITZ and end-of-press UV drying. its employees the living embodiment of its commitment to community development. PrinTing WILLIAMSON PRINTING CORPORATION, Dallas, TX CONTacTS [email protected] Cert. no. SW-COC-002844 [email protected] DOMTAR ⁄⁄⁄ A N N U A L R E V I E W ⁄⁄⁄ 2 0 0 7 ⁄⁄⁄ 03 contents 09 53 31 THIS IS HOME TeaM DOMTar Safety Meet an first… 04 industry leader and last AN inTerview wiTH Raymond Royer, PRODucTION Domtar’s President and SYSTEM 21 57 Chief Executive Officer Mills, converting and distribution centers PAPer IS SUSTainaBiliTY ParT OF 71 the essence of Putting everYDAY being life number words ON THE COVER into action Raymond Royer one and The industry’s Dylan most trusted Heart, soul brands and spirit Being number one DOMTAR ⁄⁄⁄ A N N U A L R E V I E W ⁄⁄⁄ INTERVIEW ⁄⁄⁄ 2 0 0 7 ⁄⁄⁄ 05 HE SHAPING OF DOMTAR CORPORATION COMBINED THE ASSETS OF DOMTAR INC. WITH THE FINE PAPER BUSINESS OF WEYERHAEUSER COMPANY, TWO PAPERMAKING ORGANIZATIONS, TO CREATE A NEW LEADING NORTH AN TAMERICAN ManufacTURER OF UNCOATED FREESHEET (UFS). INTerview BEING NUMBER ONE MEANS MORE THAN BEING THE BIGGEST. wiTH IT ALSO MEANS BEING THE BEST. AS RAYMOND ROYER RAYMOND ROYer SUGGESTS, THE COMPANY WILL LEVERAGE ITS NEWLY AUGMENTED STRENGTHS TO EARN THE TRUST OF Domtar Corporation’s President and ITS CUSTOMERS AND GENERATE SHAREHOLDER value. Chief Executive Officer What virtues of creating the industry production capacity, building on our respective Q leading maker of UFS made this combina- distribution networks and customer base and tion a compelling transaction for you? lowering our delivered unit costs, which have become important with rising fuel prices. I see First and foremost, it will help us face the the potential to make Domtar much greater than A challenges of a maturing market while the sum of its parts. making us financially stronger.W e now have an extensive pool of expertise, which is supported Big is usually better, but what are the by a great group of mills, having retained the best Q specific advantages of being the leading performers of both predecessor companies. Our maker of UFS that should translate into share- corporate culture is strong and entrepreneurial, holder value? focused on meeting customer expectations. We have market leadership in the crucial busi- This deal was transformative. With our costs. We have also shifted some products to mills ness papers segment. The combination was A critical mass came economies of scale, where they can be produced more competitively. an accretive way of investing in very efficient market awareness, improved access to capital Substantially all of our high volume paper products and the opportunity to de-leverage our balance will be manufactured on paper machines that are sheet. We have retained the best performing first and second quartile in terms of costs.W ith our facilities and rationalized some that were less increased marketing and distribution capability ‘‘ I see the potential cost-efficient. We have reproduced commercial we can supply the very largest or the smallest of to make Domtar match of our most popular grades. This means customer mandates. I’m particularly excited about that the same recognized brand-name product our potential to build brand recognition for our much greater (such as Husky® or Lynx®) is manufactured at products and increase our market share. than the sum of more than one location with the same quality standard. In this way, we take advantage of our its parts.’’ extended mill footprint and reduce our delivered 06 ⁄⁄⁄ DOMTAR ⁄⁄⁄ A N N U A L R E V I E W ⁄⁄⁄ INTERVIEW ⁄⁄⁄ 2 0 0 7 ‘‘This will be a great business to be in for a long time to come.’’ Demand for UFS in North America appears Q to be on a slow, structural decline. Is becoming the biggest producer a case of ensuring that Domtar will be the proverbial ‘last man standing’? This will be a great business to be in A for a long time to come. UFS paper is One could say that 2007 was a transitional the stronger Canadian dollar on our Canadian fragmented into different paper grades, which Q year conducted against the backdrop of a operations. This allowed us to reduce our debt by come in many sizes, shades, colors and basis weakening North American economy. How would more than $350 million since the end of March 2007. weights for various applications. Each application you characterize the Company’s performance? All of this augers well for Domtar’s stakeholders has its own unique demand trend and elasticity. in the future. For example, direct mail has a flat to positive All things considered, I’d say most gratifying. demand trend. In grades that are in structural A Integrating two entities is an enormous How would you assess the progress decline, our geographic coverage, proximity to undertaking but our people have gone through Q achieved in integrating the assets of the customers and efficient assets provide us with this in the past. There were difficult decisions two companies? a tremendous advantage. If required, we can taken to close or downsize operations, affecting consolidate production to lower cost facilities and employees, families and communities. It’s always As of December 30, the full year synergies achieve greater uniformity in terms of quality and the most difficult part of my job and we strive to A run-rate of what has been achieved consistency providing good potential for market do it in the most respectful way. is $130 million. That includes synergies from share growth. All this assures that we keep our In terms of performance, Domtar achieved a sharing of best-in-class practices, logistics and mills operating at optimal capacity, and avoid pro forma EBITDA of approximately $900 million transportation, procurement, etc. I’m confident discounting to drum up volume. in 2007 despite upward pressure on energy, fiber that we will meet or perhaps exceed our original and chemical costs, as well as the impact of DOMTAR ⁄⁄⁄ A N N U A L R E V I E W ⁄⁄⁄ INTERVIEW ⁄⁄⁄ 2 0 0 7 ⁄⁄⁄ 07 forecast of $200 million in synergies (run-rate) by What does the economic environment December 2008. Q look like for 2008? Priorities for 2008 include completing the synergy program and transitioning IT services Despite the slowing economy, the bigger in operations. We are also committed to finding A story of 2008 looks like cost inflation the best solution for our non-core wood business, pressure, not weaker demand or prices.